npo-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-31225

_________________________________________

ENPRO INC.

(Exact name of registrant, as specified in its charter)

_____________________________________


North Carolina						01-0573945
(State or other jurisdiction of incorporation)						(I.R.S. Employer Identification No.)
5605 Carnegie Boulevard
Suite 500
Charlotte
North Carolina						28209
(Address of principal executive offices)						(Zip Code)

(704) 731-1500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

__________________________________________


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	NPO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of April 29, 2024, there were 20,952,146 shares of common stock of the registrant outstanding, which does not include 177,588 shares of common stock held by a subsidiary of the registrant and accordingly are not entitled to be voted. There is only one class of common stock.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

ENPRO INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended March 31, 2024 and 2023

(in millions, except per share amounts)



	2024		2023
Net sales	$	257.5	$	282.6
Cost of sales	151.3		166.5
Gross profit	106.2		116.1
Operating expenses:
Selling, general and administrative	77.4		71.5

Other	0.8		0.8
Total operating expenses	78.2		72.3
Operating income	28.0		43.8
Interest expense	(10.3)		(11.7)
Interest income	2.1		3.8
Other expense	(5.5)		(1.8)
Income from continuing operations before income taxes	14.3		34.1
Income tax expense	(1.8)		(8.1)
Income from continuing operations	12.5		26.0
Income from discontinued operations, including gain on sale, net of tax	—		11.4
Net income	12.5		37.4


Comprehensive income	$	9.0	$	44.5






Basic earnings per share:
Continuing operations	$	0.60	$	1.25
Discontinued operations	—		0.55
Net income per share	$	0.60	$	1.80
Diluted earnings per share:
Continuing operations	$	0.59	$	1.24
Discontinued operations	—		0.55
Net income per share	$	0.59	$	1.79

See notes to consolidated financial statements (unaudited).

ENPRO INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended March 31, 2024 and 2023

(in millions)


	2024		2023
OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net income	$	12.5	$	37.4
Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:
Income from discontinued operations, net of taxes	—		(11.4)
Taxes related to sale of discontinued operations	—		(3.5)
Depreciation	5.9		6.0
Amortization	18.7		17.6

Promissory note reserve	4.5		—
Deferred income taxes	(0.6)		(0.4)
Stock-based compensation	2.9		2.4
Other non-cash adjustments	2.0		1.1
Change in assets and liabilities, net of effects of acquisition and sale of businesses:
Accounts receivable, net	(14.7)		(11.5)
Inventories	0.6		(4.9)
Accounts payable	(7.7)		(4.6)

Other current assets and liabilities	(15.0)		(0.9)
Other non-current assets and liabilities	(2.8)		(0.9)
Net cash provided by operating activities of continuing operations	6.3		26.4
INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Purchases of property, plant and equipment	(8.2)		(5.0)

Proceeds from sale of businesses, net	0.1		25.3
Purchase of short-term investments	—		(35.0)

Acquisition	(208.9)		—


Other	—		(0.1)
Net cash used in investing activities of continuing operations	(217.0)		(14.8)
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Proceeds from debt	39.5		—
Repayments of debt	(6.5)		(4.0)
Purchase of non-controlling interest	(17.9)		—


Dividends paid	(6.4)		(6.2)
Other	(2.5)		(1.8)
Net cash provided by (used in) financing activities of continuing operations	6.2		(12.0)
CASH FLOWS OF DISCONTINUED OPERATIONS
Operating cash flows	—		(0.6)

Net cash used in discontinued operations	—		(0.6)
Effect of exchange rate changes on cash and cash equivalents	(1.4)		2.7
Net increase (decrease) in cash and cash equivalents	(205.9)		1.7
Cash and cash equivalents at beginning of period	369.8		334.4
Cash and cash equivalents at end of period	$	163.9	$	336.1

Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest	$	5.3	$	7.0
Income taxes, net of refunds	$	4.6	$	(0.1)
Non-cash investing and financing activities:
Non-cash acquisitions of property, plant, and equipment	$	1.6	$	0.1

See notes to consolidated financial statements (unaudited).

ENPRO INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share amounts)


	March 31, 2024		December 31, 2023
ASSETS
Current assets
Cash and cash equivalents	$	163.9	$	369.8
Accounts receivable, net	134.0		116.7
Inventories	146.4		142.6

Prepaid expenses and other current assets	19.9		21.2


Total current assets	464.2		650.3
Property, plant and equipment, net	194.7		193.8
Goodwill	903.4		808.4
Other intangible assets, net	853.1		733.5

Other assets	112.4		113.5

Total assets	$	2,527.8	$	2,499.5
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt	$	10.1	$	8.1

Accounts payable	60.4		68.7
Accrued expenses	108.7		119.6


Total current liabilities	179.2		196.4
Long-term debt	670.0		638.7
Deferred taxes and non-current income taxes payable	152.7		120.7
Other liabilities	112.0		116.1

Total liabilities	1,113.9		1,071.9
Commitments and contingencies
Redeemable non-controlling interests	—		17.9
Shareholders’ equity
Common stock – $.01 par value; 100,000,000 shares authorized; issued, 21,129,575 shares in 2024 and 21,086,678 shares in 2023	0.2		0.2
Additional paid-in capital	306.4		304.9
Retained earnings	1,134.2		1,128.0
Accumulated other comprehensive loss	(25.7)		(22.2)
Common stock held in treasury, at cost – 177,943 shares in 2024 and 178,151 shares in 2023	(1.2)		(1.2)
Total shareholders’ equity	1,413.9		1,409.7
Total liabilities and equity	$	2,527.8	$	2,499.5

See notes to consolidated financial statements (unaudited).

ENPRO INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Overview and Basis of Presentation

Overview

Enpro Inc. (“we,” “us,” “our,” “Enpro,” or the “Company”) is a leading-edge industrial technology company focused on critical applications across a diverse group of growing end markets such as semiconductor, industrial process, aerospace, food, photonics, biopharmaceuticals and life sciences. Enpro is a leader in applied engineering and designs, develops, manufactures, and markets proprietary, value-added products and solutions that safeguard a variety of critical environments.

Over the past several years, we have executed several strategic initiatives to create a portfolio of businesses that offer proprietary, industrial technology-related products and solutions with high barriers to entry, compelling margins, strong cash flow, and recurring aftermarket revenue in markets with favorable secular tailwinds.

Basis of Presentation

The accompanying interim consolidated financial statements are unaudited, and certain related information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted in accordance with Rule 10-01 of Regulation S-X. They were prepared following the same policies and procedures used in the preparation of our annual financial statements. The accompanying interim consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of results for the periods presented. The Consolidated Balance Sheet as of December 31, 2023 was derived from the audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2023. The results of operations for the interim periods are not necessarily indicative of the results for the fiscal year. These consolidated financial statements should be read in conjunction with our annual consolidated financial statements for the year ended December 31, 2023 included within our annual report on Form 10-K.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets and liabilities and the disclosures regarding contingent assets and liabilities at period end and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

All intercompany accounts and transactions between our consolidated operations have been eliminated.

Recently Issued Accounting Guidance

In November 2023, an accounting standards update was issued that improves reportable segment disclosures surrounding significant segment expenses. The amendments in this guidance are effective for financial statements issued for annual periods beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating this new guidance.

In December 2023, an accounting standards update was issued that will require changes in income tax disclosures. The standard is effective for financial statements issued for annual periods beginning after December 15, 2024, with early adoption permitted. The standard requires prospective adoption with the recognition that there will be a lack of comparability between reporting periods upon adopting this new standard. Alternatively, retrospective adoption is also permitted. We are currently evaluating this new guidance.

2. Acquisitions

Acquisition of business

On January 29, 2024, Enpro acquired all of the equity securities of Advanced Micro Instruments, Inc. ("AMI"), a privately held company, for $208.9 million, net of cash acquired, subject to standard purchase price adjustments. We anticipate making a payment of approximately a $0.6 million in the second quarter of 2024 when the purchase price adjustment is scheduled to be finalized. In connection with the acquisition of AMI, there were $3.3 million of acquisition-related costs incurred during the quarter ending March 31, 2024 which were expensed during the quarter and included in selling, general, and administrative expense in the accompanying Consolidated Statements of Operations.

AMI is a leading provider of highly-engineered, application-specific analyzers and sensing technologies that monitor critical parameters to maintain infrastructure integrity, enable process efficiency, enhance safety, and facilitate the clean energy transition. AMI is included within the Sealing Technologies segment.

Based in Costa Mesa, California, AMI serves customers in the midstream natural gas, biogas, industrial processing, cryogenics, food processing, laboratory wastewater and aerospace markets. The company offers a portfolio of oxygen, hydrogen, sulfide and moisture analyzers and proprietary sensing capabilities that detect contaminants in a variety of processes, including natural gas and biogas streams, which enable operators to avoid flaring and, thereby, reduce CO2 emissions.

The purchase price of AMI was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of the purchase price over the estimated fair value of the identifiable assets acquired less the liabilities assumed is reflected as goodwill, which is attributable primarily to the value of the workforce and the ongoing operations of the business. Goodwill recorded as part of the purchase price was $95.6 million, none of which is tax deductible. Identifiable intangible assets acquired as part of the acquisition totaled $138.1 million, consisting of indefinite and definite-lived intangible assets. Indefinite lived intangible assets relates solely to future products that were in development as of the acquisition date. We will begin amortizing this asset over its estimated life once these products in development become commercially available. Definite-lived intangible assets include proprietary technology, customer relationships, trade names, and non-competition agreements. Inventory acquired included an adjustment to fair value of $1.7 million, all of which was amortized to cost of goods sold in the first quarter of 2024.

Identifiable intangible assets acquired are as follows:


			Weighted-average amortization period
Definite-lived intangible assets acquired:	(in millions)		(years)
Customer relationships	$	12.0	15.0
Existing technology	106.0		15.0
Trademarks	5.0		10.0
Other	1.1		3.3
Total definite-lived intangible assets	124.1		14.7

Indefinite-lived intangible assets acquired:
In-process research and development	14.0

Identifiable intangible assets acquired	$	138.1

We will continue to evaluate the purchase price allocation of this acquisition, including the value of intangible assets and income tax assets and liabilities and adjust this allocation as appropriate. The allocation of purchase price may be revised during the one-year measurement period as our initial estimates below are finalized. The following table represents the preliminary allocation of purchase price:


	(in millions)
Accounts receivable	$	3.3
Inventories	5.2
Property, plant, and equipment	0.2
Goodwill	95.6
Other intangible assets	138.1
Other assets	0.6
Deferred income taxes	(31.9)
Liabilities assumed	(1.6)
	$	209.5

Sales of $7.3 million and pre-tax income of $0.8 million for AMI are included in our Consolidated Statements of Operations for the period from acquisition through March 31, 2024. The following unaudited pro forma condensed consolidated financial results of operations for the three months ended March 31, 2024 and 2023 are presented as if the acquisition had been completed on January 1, 2023:


	Three Months Ended March 31,
		2024		2023
		(in millions)
Pro forma net sales		$	260.3	$	291.7
Pro forma income from continuing operations		$	14.7	$	24.3

These amounts have been calculated after applying our accounting policies and adjusting the results of AMI to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied as of January 1, 2023. The supplemental pro forma net income for the three months ended March 31, 2024 was adjusted to exclude $3.3 million of pre-tax acquisition-related costs related to AMI. The pro forma financial results have been prepared for comparative purposes only and do not reflect the effect of any potential synergies as a result of the integration of AMI. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the acquisition of AMI occurred on January 1, 2023, or of future results of Enpro Inc.

Acquisition of non-controlling interest

In connection with our acquisition of Alluxa in October 2020, three Alluxa executives (the "Alluxa Executives") received rollover equity interests in the form of approximately 7% of the total equity interest of an entity we formed for the purpose of acquiring Alluxa (the "Alluxa Acquisition Subsidiary"). Pursuant to the limited liability operating agreement (the "Alluxa LLC Agreement") that was entered into with the completion of the transaction, each Alluxa Executive had the right to sell to us, and we had the right to purchase from each Alluxa Executive (collectively, the "Put and Call Rights"), one-third of the Alluxa Executive equity interests in the Alluxa Acquisition Subsidiary during each of three exercise periods in 2024, 2025 and 2026, with any amount not sold or purchased in a prior exercise period being carried forward to the subsequent exercise periods. In January 2024, we agreed with the Alluxa Executives to change the terms of the Put and Call Rights so that all outstanding equity interests could be acquired in 2024. In February of 2024, we acquired all outstanding equity interests in the Alluxa Acquisition Subsidiary for $17.9 million, which was the minimum fixed price set in the Alluxa LLC Agreement. As this transaction was for the acquisition of all remaining shares of a consolidated subsidiary with no change in control, it was recorded within shareholder's equity and as a financing cash flow in the Consolidated Statement of Cash Flows. Enpro is now the sole owner of Alluxa.

3. Income Taxes

Our income tax expense and resulting effective tax rate are based upon the estimated annual effective tax rates applicable for the respective periods adjusted for the effect of items required to be treated as discrete in the interim periods. This estimated annual effective tax rate is affected by the relative proportions of revenue and income before taxes in the jurisdictions in which we operate. Based on the geographical mix of earnings, our annual effective tax rate fluctuates based on the portion of our profits earned in each jurisdiction.

The effective tax rates for the three months ended March 31, 2024 and 2023 were 12.6% and 23.7%, respectively. The lower effective tax rate for the three months ended March 31, 2024 is primarily driven by favorable state amended return filings and additional tax benefit related to share-based payment awards partially offset by higher tax rates in most foreign jurisdictions. The effective tax rate for the three months ended March 31, 2023 is primarily the result of higher tax rates in most foreign jurisdictions partially offset by the release of a valuation allowance on certain foreign net operating losses and a tax benefit related to share-based payment awards.

The Organization for Economic Co-operation and Development (the “OECD”) has introduced a framework to implement a global minimum corporate tax of 15%, referred to as Pillar Two that was effective for tax years beginning in 2024. While it is uncertain whether the United States will enact legislation to adopt Pillar Two, certain countries in which we operate have adopted legislation to enact Pillar Two. The adoption of Pillar Two has had no impact on our income tax expense for the three months ended March 31, 2024 and we expect there to be minimal impact in subsequent quarters.

4. Earnings Per Share


	Three Months Ended March 31,
		2024		2023
		(in millions, except per share amounts)
Numerator (basic and diluted):
Income from continuing operations		$	12.5	$	26.0


Income from discontinued operations, net of tax		—		11.4
Net income		$	12.5	$	37.4
Denominator:
Weighted-average shares – basic		20.9		20.8
Share-based awards		0.2		0.1

Weighted-average shares – diluted		21.1		20.9
Basic earnings per share:
Continuing operations		$	0.60	$	1.25
Discontinued operations		—		0.55
Basic earnings per share		$	0.60	$	1.80
Diluted earnings per share:
Continuing operations		$	0.59	$	1.24
Discontinued operations		—		0.55
Diluted earnings per share		$	0.59	$	1.79

5. Inventories


	March 31, 2024		December 31, 2023
	(in millions)
Finished products	$	52.6	$	53.6
Work in process	29.3		28.4
Raw materials	64.5		60.6





Total inventories	$	146.4	$	142.6

6. Goodwill and Other Intangible Assets

The changes in the net carrying value of goodwill by reportable segment for the three months ended March 31, 2024, are as follows:


	Sealing Technologies		Advanced Surface Technologies		Total
	(in millions)
Goodwill as of December 31, 2023	$	276.2	$	532.2	$	808.4
Acquisition of business	95.6		—		95.6


Foreign currency translation	(0.6)		—		(0.6)

Goodwill as of March 31, 2024	$	371.2	$	532.2	$	903.4

The goodwill balances reflected above at March 31, 2024, are net of accumulated impairment losses of $27.8 million for the Sealing Technologies segment and $126.0 million for the Advanced Surface Technologies segment.

Identifiable intangible assets are as follows:

March 31, 2024

December 31, 2023

Gross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

(in millions)

Amortized:

Customer relationships

498.5

191.6

SEC Form 10-Q filed by Enpro Inc.